Big surprise in durable goods report as new orders has a 3.7% decline in January

Durable goods orders saw the biggest decline in January since July 2017, which means many businesses are not spending as much this year on equipment as they did last year.

According to the Commerce Department, orders for durable goods, meaning items that last more than three years such as cars and washing machines, dropped to 3.7 percent to $239.7 billion for the month of January.

In October 2017, durable goods saw an acceleration due to the aftermath of hurricane Harvey and Irma. The temporary bump means that the numbers were seasonally-adjusted, however this month’s numbers prove that we are now getting a better idea for the real durable goods numbers.

Meanwhile, orders for transportation saw a 10 percent drop. Economists say not to read too much into changes in transportation orders because they’re very volatile. They were way up in December because of a big order of planes from Boeing, and then they fell back to earth in January.

Despite the report, economists are not worried, especially since transportation and defense orders can make durable goods extremely volatile.

“We shouldn’t overreact to one bad month,” said David Sloan, senior economist at 4cast Ltd. “We could get a bounce back next month.”

The report also shows that business investment was weak. New orders excluding transportation decreased 0.3 percent as well as new orders excluding defense by 2.7 percent.

One factor that could lead to a rebound is the $1.5 trillion tax cut that President Trump signed into law in December. This means business investments could boost. The White House’s massive economic package is set to give business owners lots of incentives to invest. If this happens, businesses can pay their workers more, which will allow workers to become more productive at their jobs.

The Institute for Supply Management, a non-profit organization, reported the index for new manufacturing goods orders decreased in January. The numbers rose back in December. The report also shows a 0.4 percent decline in orders for machinery.

Overall, the economy is doing well and unemployment is down 4.1 percent, so American manufacturers are expected to buy more equipment to improve spending, which in turn will improve capital investment.